Medical cannabis industry in Washington State on life support

By John Schroyer

Washington State’s marijuana industry appears to be evolving into a singular cannabis market, with almost no distinction between medical and recreational.

That’s the apparent outcome so far from the state’s move to merge its previously unregulated MMJ market with the heavily regulated adult-use businesses that materialized after voters approved rec in 2012.

The overarching result, say many on the ground in Washington State, is that most businesses and consumers are moving toward an industry that caters mostly to those who purchase cannabis, regardless of whether it’s used for medical purposes or simply for fun.

“That’s kind of where we’re headed,” said Maryam Mirnateghi, who is in the process of relocating her former Seattle medical dispensary so she can open a newly licensed retail shop.

State of the industry

Former medical dispensaries and collectives, which at one point were estimated to number over a thousand in the state, were required to obtain a new business permit from the Liquor and Cannabis Board (LCB) by July 1 or close. But only 222 more retail permits were available during a new licensing round after a regulatory change that increased the number of retail rec permits from 334 to 556.

That meant hundreds of medical storefronts were left without any way to continue operating legally.

Many of those closed without a fight, say industry insiders, though some were raided by law enforcement because they continued serving patients despite not having an LCB license.

Some that were able to make the transition still say there’s not much demand for formerly abundant medical cannabis products, and state numbers back that up.

According to the Washington Department of Health (DOH), as of mid-October, only 13,014 medical cannabis patients have signed up since July 1 to purchase “medical-grade” marijuana products such as higher-potency edibles.

That’s down from an estimated patient pool of over 100,000.

Part of the reason is that many patients don’t want their names on a state registry, Mirnateghi said.

Another reason, others in the Washington trade said, is that a medical card doesn’t provide much in the way of financial savings or more options for “medical grade” products. Registered patients are exempt from a 9.6% sales tax, but they still must pay the same 37% excise tax as rec customers.

“It’s a small savings, with not paying the sales tax,” said Jason Welty, owner of Loving Farms Marijuana Store in Mount Vernon, north of Seattle. And so far, he said, “I just haven’t seen a lot of (medical) products being offered that have the extra potency.”

In addition, all licensed cannabis retailers are required to obtain medical marijuana endorsements from the LCB and to have a state-certified MMJ consultant on staff if the shops want to serve registered patients as opposed to just rec customers. While the LCB medical endorsement is free, the consultant certification costs at least $395 per person plus a $95 DOH application fee and takes at least 20 hours to complete.

To date, 447 retailers have obtained LCB medical endorsements, said agency spokesman Mikhail Carpenter. But only 155 retailers have a certified medical consultant on staff, according to the DOH’s website.

“It doesn’t make good business sense, and that’s why only 155 stores are doing it,” said Karl Keich, the owner of Seattle’s Pot Stop, another former medical dispensary that was able to transition to the new system. “It’s something that actually negatively affects your bottom line.”

Keich estimated his customer base currently is only about 5% registered medical patients.

What it adds up to

Because of the depressed demand for “medical grade” cannabis products, many retailers haven’t bothered to finish wading through the red tape to obtain an endorsement or a medical consultant.

And if the patient pool remains fairly small, licensed businesses will likely respond in kind and focus more on the much-larger rec consumer base. That means less high-potency medical products and probably just a non-qualified marijuana industry that doesn’t offer much difference between medical and recreational.

Keich, for example, estimated that the number of registered patients will stay below 20,000.

Cannabis industry attorney Ryan Agnew said he doubts it will get even that large, in part because the new system actually provides a disincentive for businesses to opt in to “medical grade” products. The new regulations require extra testing, as well as different labels for medical products, all of which means extra costs to producers.

That leaves no incentive, in turn, for potential patients to register or make “medical” purchases.

“The cost of compliance, it dissuades producers from voluntarily declaring ‘medical grade,'” Agnew said. “It dissuades retailers from putting people on staff or training them, in the hopes that medical patients will walk in the door and make purchases. And there are not unique products – high-concentration specifically – that only patients can avail themselves of.”

Mirnateghi added that the costs extend to a risk that the producers’ “medical” products will be compliant with testing, because if the samples tested don’t pass muster, then entire batches have to be destroyed and businesses must eat the cost.

“The risk is so great, because if their lot fails the test for ‘medical grade’ product, they can’t revert that to regular product, so they have to destroy that entire lot,” Mirnateghi said. “It makes zero business sense, frankly.”

Will medical cannabis endure?

Even with all of these hurdles, the fact remains there are 155 retailers with medical marijuana consultants and endorsements. And it’s probable that many, such as Keich and Mirnateghi, will persevere on the medical side because they want to serve that demographic.

“Because of our tradition and our roots in medical marijuana and helping people, myself as a business owner, I suck it up and I do the stupid thing for the business,” Keich said.

Agnew believes medical cannabis will endure. He noted that marijuana will continue to be used for medical purposes in Washington State, likely by thousands of consumers. It’s just a question of how the industry is structured and whether businesses will focus on medical uses and manufacturing medical-specific products.

Mirnateghi said she’s planning to have a number of her employees obtain the same certification so she can continue as a medical marijuana provider, in part for the sake of customer service and because she views it as valuable staff training.

But when asked whether there’s a future for medical cannabis in Washington, she answered, “I don’t entirely know the answer to that question yet.”

John Schroyer can be reached at [email protected]

10 comments on “Medical cannabis industry in Washington State on life support
  1. Actual Weed Company on

    Is this article a joke?

    First of all, this article is full of misinformation. As a dual license producer/processor and medically/recreationally licensed, nothing in this article makes sense. We have the same testing standards for all things. If anything, this change has seen an increase in the quality and testing for all medical patients. Unless you think they deserve less, this was a smart move by Washington state. Most of the stores that were illegitimate were shut down for not properly paying taxes. This attorney sounds like they understand absolutely nothing about what we do on a daily basis or the software we use or the standards we have to abide by.

    Please stop this type of nonsense.

    Reply
    • In the business on

      We also are a fully licensed P&P. And your criticism of the article is way off base if not inaccurate. And why would you even mention software as part of your knowledge of the industry? Unless your referencing “bio-trash,” the state’s failed software integrator of choice. The article is correct – it costs more for the Producer/processors (P&P’s) to provide medical cannabis. It also increases risk, as the article correctly details. On the retail side – yup, increased costs for sure. The only benefit to the consumer in having a medical card and buying “medical” is that you can purchase higher potency processed goods (cookies, chocolate, capsules, etc). Oh and you save a measly 10%. Most P&P’s will eventually provide the higher dose processed products, but currently the demand is very low. Additionally, the number of producers providing flower will continue to remain very low, unless the system is changed. There is simply very little upside for them, plus they then have to “designate” canopy space for medical. A total hassle.

      Net/net – very few reasons to get a medical card or provide the products….as yet.

      Reply
  2. Rick on

    “But when asked whether there’s a future for medical cannabis in Washington, she answered, “I don’t entirely know the answer to that question yet.”

    The answer’s easy, Washington state has forced medical patients to go back to the black market, while the retail market sells a lot of bad weed that customers can’t even smell first before buying.

    Not too surprising, really, when one realizes how completely incompetent the LCB proved to be when the state took over the retail alcohol business.

    Reply
  3. David Hopkins on

    another reason to vote NO on Recreational use in California. Let the Medical market in California develop, evolve, establish regulation, taxation, grow and survive independently of recreational cannabis use before the emergence and take over by big business in the industry.

    Reply
  4. Robert Hempaz, Phd Trichometry on

    No home grows in WA? In Az, if Prop 205 passes on Nov 8th, each adult will be allotted (6) mature Cannabis plants per household … (12) if a two-adult home. Plus, you get to keep your own stash from your grows. I imagine the #MedMj dispensaries will hit the #RecMj windfall a la Colorado when the #Snowbirds come to town. But, for us regular citizens of Arizona that suffer from late stage Insomnia … Nov 8th cannot come quicker … ( No more of that $90 cash per quarter-ounce BS come Nov 8th … Let the Winter Visitors to Az pay the Cannabis tax! )

    Reply
  5. Stray Cat on

    In WA: I’m glad i can go to the store and buy it. I do wish I could SMELL THE STRAIN before i buy it. I am MMJ, the strain and grower make a difference. I asked my retail shop about a month ago, why the menu doesn’t list the grower on their on line menu. I like to know before i go, less my bad eyesight cause friction. . They said it had to do with Leafly. I chose to be on the registry in case I’m drug tested.

    Reply
  6. Norman Ives on

    The state of Washington effectively killed medical MJ in this state in order to drive consumers (medical & recreational) into the heavily taxed system established by I-502. While there was an intent to allow retail (dispensaries) a path to transition no accommodation was made to allow producers & processors a path to legalization. This has resulted is wholesale catastrophic loss of the medical cannabis products true medical patients count on. Many producers of edibles, topicals and other non-smoked medical MJ products simply ceased to exist on 07/01/2016
    The state was right to require medical MJ operations to meet the same testing and tracking requirements placed on the recreational operations. The process by which they went about implementing these requirements was the real problem, they threw the baby out with the bathwater and now medical cannabis in this state has a long long way to go to get back to where we were just two years ago.

    Reply

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